New wind power installations are cheaper than coal-fired power stations. Photo: Nicolas Walker

Australia is unlikely to build new baseload power stations burning coal because of tumbling prices for renewable energy and the rising cost of finance for emission-intensive fuels, according to research by Bloomberg New Energy Finance.

Even without a carbon price, wind energy is now 14 per cent cheaper than a new baseload coal-fired power station and 18 per cent cheaper than a new gas one, BNEF said in a new report.

Nobody in their right mind would be building coal-fired power plants now

The gap widens further when the carbon tax is added. Wind farms can now generate electricity at $80 per megawatt-hour, compared with $143 for a new coal power station and $116 for a new baseload gas power station.

In Western Australia, large-scale photovoltaic (PV) power stations are already cheaper than new coal-fired generating capacity, coming in at $157 per MWh compared with $190, BNEF said.

“It's very unlikely that new coal (power stations) would be built in Australia,” Kobad Bhavnagri, head of clean energy research for BNEF in Australia, said.

Aside from the carbon tax – which the Coalition has vowed to scrap if elected at the September 14 election - reputational and other risks associated with coal means developers will struggle to obtain low-cost funds for any new venture. The research included a survey of the country's big-four banks.

“Financing for coal would be made very expensive because of all the risks involved,” Mr Bhavnagri said.

“A bank would be quite conscious of financing a highly polluting asset,” he said. “That would likely make them susceptible to environmental activism.”

Demand sinks

Demand for electricity, meanwhile, continues to trend lower. Usage in NSW is at 10-year lows and Victoria at eight-year lows according to data for the December-January period, said Mike Sandiford, director of the Melbourne Energy Institute.

Electricity demand in the National Electricity Market is running about 16 per cent short of the amount regulators in the middle of the last decade expected current levels to be.

‘‘Nobody in their right mind would be building coal-fired power plants now,’’ Professor Sandiford said.

Rising electricity prices, a slump in manufacturing output and the spread of solar PV on residential roof tops are combining to sap power demand, he said.

"The signal is most clear in South Australia," Professor Sandiford said, with the number of houses in the state now approaching one in four residences.

Extending the state's trend of solar PV take-up over the past five years for another five years could see midday demand for power from the national grid drop to the low levels seen during early morning hours, he said.

"You've got 20 per cent coming from wind, and a high-level of PV now driving a big chunk of demand out of the middle of the day," Professor Sandiford said. "South Australia is a fascinating experiment."

Falling costs

BNEF estimates that the cost of wind generation has fallen by 10 per cent and the cost of solar PV by 29 per cent since 2011, and further technology advances will drive prices lower.

By 2020, wind power's cost per megawatt-hour will drop to $70 and then to $66 by 2030. The cost of large-scale solar PVs will drop to $97 for an equivalent amount of electricity and then to $87 10 years later, Mr Bhavnagri said.

The presumed advantage of gas, including its relatively low carbon emissions compared with coal, have been largely nullified by the liquid natural gas export boom which will force prices for the fuel higher.

“The perception that fossil fuels are cheap and renewables are expensive is now out of date”, said Michael Liebreich, chief executive of BNEF.

“The fact that wind power is now cheaper than coal and gas in a country with some of the world's best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head.”

While renewables are falling in price, they can't compete with Australia's existing coal-fired power stations built by state governments in the 1970s and 1980s, and whose construction costs have now been depreciated, BNEF said.

“New wind is cheaper than building new coal and gas, but cannot compete with old assets that have already been paid off,” Mr Bhavnagri said.

“For that reason policy support is still needed to put megawatts in the ground today and build up the skills and experience to de-carbonise the energy system in the long-term.”

The Climate Change Authority completed its review of the Renewable Energy Target scheme late last year and recommended retaining the key element - leaving unchanged the target for large-scale generators unchanged at 41,000 gigawatt hours of renewable energy per year by 2020.